Congressman battles Comcast over programming dispute and TWC merger

US Rep. Tony Cárdenas (D-CA) is urging government regulators to examine Comcast's contract negotiations with small programmers as they review Comcast's proposed acquisition of Time Warner Cable.

Cárdenas outlined his concerns in a letter he plans to send to Attorney General Eric Holder and Federal Communications Commission Chairman Tom Wheeler. Cárdenas sent a draft of the letter to all members of the House of Representatives today, urging them to co-sign it before he sends it to Holder and Wheeler later this week.

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Cárdenas's interest was sparked by a dispute between Comcast and Estrella TV, a Spanish-language station that is demanding payment from Comcast. Cárdenas said in his letter to Holder and Wheeler that he does not intend to "tak[e] sides in the current contractual dispute." However, he said antitrust regulators should examine whether Comcast's increased size would give it too much power over small programmers.

Estrella is currently a "must-carry" channel, meaning Comcast has to air Estrella programming but doesn't have to pay Estrella. However, broadcast stations are allowed to drop their must-carry status and switch to a "retransmission consent" model in order to demand carriage fees, with the risk of not being distributed by cable systems.

Estrella is seeking payment, but Comcast isn't obligated to pay up. The companies have until February 19 to settle their dispute or Estrella programming would be pulled in Houston, Denver, and Salt Lake City. Comcast carries Estrella in 13 other markets, but those agreements are not expiring yet.

Estrella and Comcast blame each other for the dispute. Estrella claimed it is being "forced off the air," and pointed out that Comcast owns its bigger rival, Telemundo. Estrella claimed to be "earning sky-high ratings that surpass competitors Telemundo, Univision, UniMas, and nearly all others in the Spanish-language television space," but Comcast says it's not actually that popular.

"We do not believe Comcast’s customers should have to pay millions of dollars for Estrella’s broadcast programming that has very limited appeal," Comcast said in a statement issued to Ars and other media outlets. "Contrary to Estrella’s assertions, these stations are not widely viewed among Latino audiences. We have reached thousands of agreements with broadcasters and programmers without ever experiencing an interruption of service and are proud to be the nation’s largest cable provider of Spanish language network packages, with a distribution platform that delivers more than 60 Hispanic cable networks on the majority of Comcast Cable systems. We hope to reach a fair agreement with Liberman and avoid service interruptions. So long as [Estrella owner] Liberman [Broadcasting] reciprocates our ongoing good faith negotiations, our customers should not lose this programming."

Comcast has offered to continue carrying Estrella in the three markets "under the existing arrangements, which are the same terms we have with other, comparable networks," Comcast said.

Citing Nielsen data, Bloomberg reported that Estrella "drew an average of 273,000 viewers in prime time in the season through Jan. 25... That placed it behind Univision Communications Inc.’s Univision network, which had 2.9 million, Telemundo’s 1.3 million and UniMas, another Univision channel, at 580,000, among Spanish-language broadcasters. It was the only one of the five largest to show an increase in viewers this season."

Estrella says it is "the number one Spanish network in Salt Lake City beating Univision; number two in Denver beating Telemundo; and number three in Houston beating UniMas."

Independent program providers are an essential part of the diversity of programing options available to pay-TV subscribers in America. In July 2014, more than fifty of my colleagues joined me in a letter to the Chief Executive Officers of Comcast and Time Warner Cable, asking them to ensure that, should there be a merger between Comcast and Time Warner Cable, that independent program providers are able to continue to operate on an even playing field in what would be an increasingly consolidated media environment. We’re writing today to again ask that close attention be paid to the pending merger between Comcast and Time Warner Cable to ensure that their potential increased market dominance does not negatively impact communities and protects the best interest of consumers and viewers.

Comcast and Time Warner Cable have maintained that such a market domination would not be likely under the proposed merger. However, this week brought more evidence this may not be the case. Estrella TV is currently under a carriage agreement with Comcast in Denver, Houston and Salt Lake City which expires at midnight on February 19th. If the parties are unable to come to terms by that date, Estrella TV contends that it will be forced to terminate its carriage agreement with Comcast in those markets because the terms Comcast has been requiring are commercially unfeasible.

This example of a contract negotiation with a direct competitor to Comcast's Telemundo, shows the potential for an uneven playing field, where the direct competitor is sitting at the bargaining table and negotiating commercially reasonable terms. As a gatekeeper to the information services offered in markets with 90% of Hispanic pay-TV subscribers and more than 30% of all pay-TV households in America, a merged Comcast-TWC will have an incentive to discriminate against independent program providers and drive down carriage fees for competitors, position those competitors poorly on the dial, offer them in standard definition versus high definition, or place them on more expensive and less viewed programming tiers. Each of these outcomes would economically disadvantage any independent program provider when competing with a Comcast-owned competitor.

Congress has a long history of supporting competition going as far back as the passage of the Sherman Antitrust Act in 1890. With that in mind, we ask that your review of the proposed merger consider whether the increased leverage created by virtue of the new company’s size and market dominance would result in, and even encourage, anti-competitive practices.

This letter should not be construed as taking sides in the current contractual dispute. However, the overarching concerns we have are historically the purview of Congress. While it is clearly not the place of Congress to meddle in individual contract negotiations occurring fairly, on an even playing field, between two companies, this situation clearly demonstrates the difficulties independent program providers face when negotiating with Comcast and other heavily vertically integrated companies.

As we have too often seen, programmers lack reasonable carriage alternatives in most markets. Comcast mimics other large cable companies in their domination of a given market. For instance, Comcast itself has pointed out that they do not compete with Time Warner in most markets, nor with other major cable companies. This denies a free market for content providers to seek a better deal elsewhere. Direct Broadcast Satellite TV is not an equivalent alternative since many independent content providers are carried regionally and cater to a regional audience, which is not possible on the nationwide satellite programming. Likewise, providing programming solely online, in the absence of access to Comcast, is not a viable alternative, given the lower rates of broadband access when compared with cable.

Comcast, in the person of Executive Vice President David Cohen, said to a Senate committee hearing, “Comcast, like the MVPDs with which it competes, has every business incentive to carry programming that its customers value and demand.” That attitude would indicate a proper, market-focused decision-making process, not one based on suppressing competition. However, in the current contract negotiations, Estrella TV showed strong Nielsen ratings during November sweeps, higher than Comcast’s Telemundo in primetime among Hispanics 25 to 54 in Salt Lake City, Denver and Los Angeles.

Independent program providers, like all businesses in America, must have the protection against vertical integration pressures provided by American law. No company should be forced to compete against a vertically integrated company given unfair advantage by powerful corporate parents.

As Members of Congress, we believe it is in the best interest of the public and the consumer to promote competition on the airwaves and recognize the disadvantage of scale that independent programmers face when negotiating for distribution and carriage fees. We ask that in the course of your review of the proposed merger between Comcast and Time Warner Cable, your agencies closely examine whether safeguards could even exist to protect unaffiliated programming from being discriminated against on the basis of self-interest.

We look forward to working with you on these issues and thank you for your consideration of our views. Please do not hesitate to contact us directly if you need any additional information.